IPO Observation | Power Battery Company Punsai Technology Seeks Listing on Hong Kong Stock Exchange, Major Customer Cuts Orders

Recently, power battery system supplier Punsai Technology Holdings Limited (hereinafter referred to as "Punsai Technology") submitted a prospectus to the Hong Kong Stock Exchange and plans to list its shares on the main board of the exchange with J.P. Morgan Securities (China) Company Limited and CITIC Securities Company Limited serving as joint sponsors.

Punsai Technology mainly designs, manufactures, and sells custom battery systems for electric vehicles, in addition to energy storage solutions and battery management systems (or BMS). According to Frost & Sullivan's report, in 2022, Punsai Technology was the third-largest power battery system supplier to China's new-energy passenger cars (BEVs) by shipment volume, with a market share of 9.6%.

This IPO will raise funds mainly for continued technology development, capacity expansion, and working capital, as well as general corporate purposes.

Highly dependent on major customers

Punsai Technology's products are primarily power battery systems, with some minor sales of energy storage solutions and BMS. According to Frost & Sullivan's report, as of June 30, 2023, Punsai Technology had already provided power to over 1 million BEVs in China, including approximately one-tenth of the country's pure-electric vehicles and more than a third of A00-level new-energy passenger cars.

For Punsai Technology, major customers are the main source of business. The prospectus shows that as of December 31, 2020, 2021, 2022, and June 30, 2023, its top five customers accounted for 94.4%, 96.4%, 97.4%, and 90.6% of total revenue, respectively; while the largest customer accounted for 54.2%, 47.6%, 46.0%, and 35.5%, respectively.

Among these major customers, most are well-known domestic and international OEM manufacturers with strong market presence, which may limit Punsai Technology's bargaining power and make it more susceptible to fluctuations in customer orders and performance.

Notably, the prospectus shows that in 2022, five-star was once Punsai Technology's largest customer, contributing revenue of RMB 25.63 billion, or approximately 46% of total revenue. However, due to Five-star's "cancelling" orders, this major customer fell to third place in the first half of 2023, with revenue contribution dropping to 21.1%. As a result, Punsai Technology's revenue decreased by 53.9% year-on-year to RMB 11.16 billion.

Except for these major customers, some of Punsai Technology's main suppliers are also its clients. One of the top five customers is a supplier that buys battery systems from Punsai Technology and purchases raw materials and services, including liquid-cooled pipes and employee labor and transportation services as well as product maintenance services.

As of December 31, 2020, 2021, 2022, and June 30, 2023, the total sales to this supplier were RMB 2.4 billion, RMB 8.61 billion, RMB 17.46 billion, and RMB 3.99 billion, respectively, accounting for approximately 23.6%, 33.6%, 31.3%, and 35.5% of total revenue, respectively; while the total purchases from this supplier were RMB 250 million, RMB 100 million, RMB 1.14 billion, and RMB 610 million, respectively, accounting for approximately 0.2%, 0.0%, 0.2%, and 0.7% of total purchases, respectively.

Furthermore, in 2020 and 2021, supplier A was one of Punsai Technology's main suppliers and also a client. In these two years, supplier A accounted for approximately 32.2% and 26.9%, respectively, of Punsai Technology's total purchases.

"Subsidy" over after performance pressure

Recently, China's new-energy passenger car market has grown rapidly, with the number of OEMs and electric vehicle models increasing. The penetration rate (percentage of electric vehicles in total automobile sales) has increased from 2.7% in 2017 to 25.6% in 2022 and is expected to continue growing to 61.3% by 2027.

The rapid development of domestic new-energy passenger cars, which is inseparable from the "subsidy" support. In 2010, the Ministry of Finance, together with four other ministries, issued a notice on the trial implementation of private purchases of new-energy passenger cars, determining that five cities - Shanghai, Changchun, Shenzhen, Hangzhou, and Hefei - would be selected for pilot projects to promote the development of the new-energy automobile industry.

However, after ten years of "subsidy" support, it is now facing a withdrawal. According to the joint notice issued by the Ministry of Industry and Information Technology, the Ministry of Finance, the Ministry of Science and Technology, and the National Development and Reform Commission on December 31, 2022, the new-energy passenger car purchase subsidy policy will be terminated as of December 31, 2022, with no further subsidies provided for vehicles registered after that date. This means that the new-energy automobile industry support policy, which has been in place since 2010, will be fully phased out next year.

As a result, the future development of new-energy passenger cars is full of uncertainty.

Punsai Technology also mentioned the reason for this year's revenue decline as being due to the expected changes in government subsidy policies from January 2023, which led to an unusually high demand for electric vehicles in China during the fourth quarter of 2022. This caused customers to reduce their orders in the first half of 2023. As a result, Punsai Technology's main clients reduced their purchase orders, and its business strategy adjusted to focus more on the new A0-level BEV passenger car market.

The prospectus shows that Punsai Technology's revenue from 2020 to 2022 was RMB 10.15 billion, RMB 25.67 billion, and RMB 55.74 billion, respectively; while its operating profit was -RMB 5,173 million, -RMB 1,005 million, and RMB 1,210 million, respectively; and its net profit was -RMB 8,894 million, -RMB 6,592 million, and RMB 1,080 million, respectively.

In the first half of 2023, Punsai Technology's operating profit was RMB 49.3 million, compared to RMB 4,118 million in the same period last year; while its net loss was RMB 377 million, compared to a net profit of RMB 3,259 million in the same period last year.

In the face of domestic market fluctuations, Punsai Technology has chosen to "go out" and seek new growth points. Hong Kong Securities Noted that as of June 30, 2023, one Indian company had become Punsai Technology's second-largest customer, accounting for approximately 21.1% of its revenue. About this Indian company, Punsai Technology only described it as "India's leading electric vehicle manufacturer listed on the National Stock Exchange of India, the Bombay Stock Exchange, and the New York Stock Exchange, with a market value of approximately US$26.3 billion as of June 30, 2023."

New-energy automobile market is changeable by the minute, so as an upstream battery supplier, Punsai Technology also needs to be more resilient in responding to changes.